What is Your MCC code, and Why Do You Care?

What is your MCC code? This stands for your “Merchant Category Code”, and if you don’t know much about MCCs, then this is just going to be a four-digit number to you. However, that four-digit number is actually very important for your business endeavors, especially if you are working with another company, and it will be required during tax time. If you don’t know your MCC now, it would be good to find it out immediately.

So, just what is the MCC? As of this writing, there are over 600 different MCCs, and each one is used to classify your business. In this way, the MCC helps organize your business by what you sell or what you offer. For example, there are MCCs for selling car parts, guitars, and other products and services. Even businesses like online gambling, which is illegal in the US, is added into the MCC gamut.

If you just sell one type of product, such as office furniture, then determining your MCC is going to be pretty easy. Just select the MCC that describes your one product category. However, this gets a little harder when your store sells office furniture, has a copy and printing department, a computer department and printers.

What do you do in this situation? You don’t choose several MCCs, one for each product. The IRS knows that many businesses have expanded categories, and that each business will not fit perfectly into one category. In this situation, assess where you get most of your money. If most of your profit is from selling computers, then use the MCC for computers; if your main profit is from office furniture, then select that as your MCC.

Now, why is the MCC important? When it comes time to pay the IRS its share of the sales, you need to fill in your MCC during the tax application. The amount of taxes that have to be paid typically do not change MCC from MCC. Another reason this is important is because credit card companies care a lot about this number, and staying in their favor and in the government’s favor is determined by proper use of the MCC.

If you contract work from another business, then the MCC is important in this aspect, but not your MCC. Instead, you need to know the business’s MCC. When you contract work, you have to tell the IRS that you paid this business, and you have to report how much you paid them. To adequately enter the payment information, you need to enter the MCC as well, and without knowing or entering it, you may end up breaking some laws. Some MCC businesses are not reported to the IRS, so check with the IRS before doing this.

Another reason this is important for your business is because, when you file taxes, you have to report on how much you made in selling. Your MCC will help the IRS determine whether or not the items you sell are taxable or non-taxable by the government. If you operate a business that sells non-taxed items, but file with an MCC that has taxed items, you may end up spending more on taxes that you really need to.

In the end, the MCC is a small four-digit number that is very important for your business’s continued success. Whether it is to stay friends with credit cards, making sure taxes are paid correctly or to legally report another business for a payment, the MCC is used often and should never be forgotten.

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SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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